Less than half of students (43%) that start college never finish their degree. And with 35% of students borrowing to attend college, that’s a lot of debt with no degree. Many college grads can’t find jobs in the areas of their major, some are stuck with minimum wage employment and many are struggling with student loans. For dropouts saddled with debt, this can be even more of a challenge.
Student loan delinquency rates are four times as high among dropouts as graduates. If you find yourself in this uncomfortable debt situation, you are no doubt looking for solutions. And with Congress and the White House embroiled in scandals over NSA hacking our Google accounts and listening to our cell phone conversations, the student loan crisis is getting much less attention than it merits. Looks like it’s up to us to deal with our debt crisis for ourselves… Here are some tips for dealing with your debt with no degree:
#1 Finish College Cheaper Unemployment rates for college grads are roughly half that of those with just a high school diploma. If you really want to pursue a career that requires a degree, you should try to finish it, but do it affordably. Find the cheapest program you can, work full time, pay cash for it and finish up going part time. This will keep your loans in deferment while you’re in school and still enable you to get a better job that will make your loans more affordable in the long-run.
#2 Change to a Skilled Trade If part of the reason you dropped out is because you weren’t sure college was for you or weren’t sure what you would do with your degree, consider a change to a skilled trade. You can defer your loan while in trade school and many certifications are achievable in six to 18 months. There are lots of skilled trades in demand and pay much more than a minimum wage job you may be toiling in now. Some states offer scholarship and grant monies for trade schools to make them more affordable.
#3 Income Based Repayment Don’t throw up your hands because you can’t afford your monthly student loan repayments. Instead, before they go into delinquency, apply for income-based repayment. This should get you a much lower monthly payment that’s affordable. However, this is not license to blow any additional monies you have. The less you pay on your debt, the longer it will linger and if you don’t pay at least your minimum interest, your loan balance will increase while you’re in IBR. See #4 below.
#4 Pay More than IBR Minimum But don’t stop there, use this student loan calculator and set it for your principal, interest rate and a 10 year payment. Click to show the amortization table and you can see your monthly interest amount – roughly $150 on a $27k loan at 6.8%. If your IBR allows you to pay just $75, you’ll have $75 in interest capitalize each month. This will drive your balance up. Whenever possible, in addition to your IBR payment, send in an additional amount to cover the rest of the monthly interest. If you have a windfall, overtime cash or other funds, send them in each month and request the funds be applied to principal to deal with your debt more efficiently.
Notes on IBR: The government will cover your interest for the first three years you’re in IBR if you have a subsidized Direct or Stafford Loan. For all other types of loans, interest will accrue, so it’s critical to pay at least the amount of your interest so you’re not sacrificing your long-term financial future.
Another key to managing student loan debt is information. Try Tuition.io’s free student loan management tool to view, track your loans and see information on repayment plans so you can get and stay informed about your debt.
If you need to take an extra job or work overtime to knock out this debt, the short-term sacrifice will make your financial future brighter. With that being said, we don’t recommend you pay off your loans using higher interest rate funds. See our recent blog below on tactics to avoid as well as other blogs on student loan repayment: